China and the World of Business • China Business and the World

…But for those of us who see massive intellectual property battles as good theatre, there is a battle coming that is sure to beat even the SCO – IBM infringement suit in terms of reams of press and depth of passion on both sides: the battle over TD-SCDMA.

…That then turns into a huge global debate about technology standards and royalties that will likely extend to intellectual property generally, forcing at some point in the next decade a WTO round on trade and protection of intellectual property and the role of IPR in global standards.

There is a small but rich cottage industry in Beijing built around the defense of intellectual property rights in China. There are legions of law firms, public affairs firms (not lobbyists in the pure sense of the word, but close), consultants, investigators, and the like in the business of helping global firms seek out infringers and try to get the enforcers to do something about it. At the moment, their collective attention is all turned to this 90-day anti-piracy search-and-destroy sweep through 15 provinces.

But for those of us who see massive intellectual property battles as good theatre, there is a battle coming that is sure to beat even the SCO – IBM infringement suit in terms of reams of press and depth of passion on both sides: the battle over TD-SCDMA.

For those not familiar with it, TD-SCDMA stands for Time Division Synchronous Code Division Multiple Access. Forget what that all means. Put simply, TD-SCDMA is an ostensibly Chinese developed cellular mobile system for delivering high-speed broadband over cellular. It competes with two other standards, CDMA-2000 1x, developed by Qualcomm, and WCDMA, developed by the Europeans with significant helpings of Qualcomm’s intellectual property.

TD-SCDMA possibly offers a few advantages over the other two standards, but apparently only if you build out a very dense network of base stations. It is quite telling that the world’s major cellular service providers aren’t even considering the standard. Apparently, whatever TD-SCDMA offers isn’t THAT much better than what’s already out there.

The Chinese claim that TD-SCDMA is totally locally developed. The folks at Qualcomm beg to differ, and say there are large chunks of Qualcomm technology in TD-SCDMA that require royalty payment. This really upsets the Chinese telecommunications policymakers who are backing the standard, since they see TD-SCDMA as an opportunity to stop having to pay royalties to foreigners.

A TD-SCDMA test network is rolling out starting this month. The Chinese want to go commercial with the technology next year. And that’s about the point when the legal battle would begin. And what a complex battle it would be.

Qualcomm has their claim, and has likely been preparing this case for several years. The Chairman of Qualcomm China, Wang Jing, is a U.S. educated attorney who came to Qualcomm from a white-shoe law firm in Washington. Jing is erudite, intelligent, has a proven talent for defusing the nationalist argument, and he knows the law. Expect Qualcomm to make him their front man in the battle. Qualcomm’s biggest strategic question will be to decide in which jurisdiction to file the suit, having to balance between winnability (almost anywhere outside of China) and enforceability (anywhere within China, including Hong Kong.)

Datang, the primary local developer, will fight back ferociously, both in the courts and in the court of public opinion. They know that the very success of their company depends in part on not having to pay foreign royalties, and that much of their status with the market and policymakers rests on the contention that they did it all themselves. Expect a massive counter-suit, possibly overseas, and a public relations campaign designed to smear Qualcomm with anything and everything.

The Chinese government is in a huge quandary. They want Datang to win this case, dodge having to spend hard currency on IP, and prove China’s technological prowess. At the same time, China is facing a potentially large and damaging case in the WTO over its continued failure to protect intellectual property. It must demonstrate to the world that companies can do business in China without fear of having their IP stolen. Assuming Qualcomm’s case has merit, letting the case go to trial in PRC courts is a no-win situation for China’s policymakers. If Datang wins in Chinese courts, observers will claim the verdict was fixed. If Datang loses, the government will not only look foolish for having supported Datang’s claims, they will be faced with the unpalatable choice of either compelling Datang and the local manufacturers to pay royalties, or openly defying international IPR conventions.

My bet is for the government to push for a quiet settlement.

So, here is how it will play out.

1. The MII announces 3G licenses, and the first ones go to carriers for TD-SCDMA networks.

2. Manufacturers start selling phones.

3. Qualcomm sues

4. Everyone makes a lot of noise for 6 months to two years.

5. All parties involved, battered in the public eye by the entire affair, wind up settling.

6. Lawyers collect massive fees.

7. Nearly all international manufacturers and most locals wind up paying royalties to Qualcomm on TD-SCDMA phones anyway.

8. We go into round two, where everybody and his brother get together to try to dictate to Qualcomm what royalties it can charge for its IPR.

9. That then turns into a huge global debate about technology standards and royalties that will likely extend to intellectual property generally, forcing at some point in the next decade a WTO round on trade and protection of intellectual property and the role of IPR in global standards. Indeed, the discussion is likely to attack the broader question of rationalizing copyright, trademark, and patent law around the world, on enforcement, and fair use.

Get ready. Qualcomm vs. Datang over TD-SCDMA will help start the most important global legal battle of the 21st century.